Jakob Fugger: Timeless Investing Lessons From The World’s Richest Man

“Through a combination of businesses in precious metals, goods and financing, he was able to become the leading merchant and financier of his time. Jakob Fugger is the best-known face of the Fugger family. His portrait with the gold cap, which was made by Albrecht Dürer, shows him at the high point of his powers.”

Jeff Bezos gets a lot of attention for the wealth he’s accumulated running Amazon. Yet Bezos’ wealth pales in comparison to one Jakob Fugger. Through principled, disciplined investment, Fugger built a fortune worth over $400B in today’s dollars.

Jakob came from an entrepreneurial family. His father Hans immigrated to Augsburg, Germany in 1367. With seed money in his pocket, Hans started the family textile firm.

There’s three investing lessons we can learn from Fugger The Rich:

    1. Invest In Highly Distressed Areas
    2. Confidence in Your Ability
    3. Solid Understanding of Accounting (Thirst for Knowledge)

Fugger’s timeless wisdom is another example of the Lindy effect at work. Before we dive into the lessons, let’s learn a bit about the man behind the fortunes.

Jakob Fugger was born in 1459 to a family of textile entrepreneurs. The Fugger family bought textiles from local manufacturers. They then sold those textiles at trade fairs in major cities like Frankfurt, Cologne and Northern Italy. This was Jakob’s first taste of trading, of enterprise building.

Fugger left for Venice to learn as a trading apprentice. What he learned as a green teenager had a lasting impact on Fugger’s future. It was this moment that shaped Fugger’s financial career.

In Venice, Jakob learned double-entry accounting, politics and the financial opportunity of war. After learning the ropes of trade, textiles and accounting, Fugger came back to Augsburg to work in the family firm. Working in Augsburg, Fugger built the family firm into an empire. Only the Rockefeller family comes close.


Lesson #1: Invest in Highly Distressed Areas

When we think of investing in distressed areas, we think of Sam Zell dancing on graves. Carl Icahn betting big on a failing enterprise. But what we don’t always think of is investing in distressed people or kingdoms. This is hard to imagine for myriad reasons. Few people can make direct investment into a kingdom.

Yet the underlying principles apply to financial markets.

Fugger didn’t have many avenues to deploy his capital. Lack of investment diversity forced Fugger to focus on the following areas:

    • Mining
    • Real estate
    • Silver
    • Copper
    • Kings and Kingdoms

Fugger used these areas to amass his fortunes. As an aside, Fugger’s lack of choice reminds me of the real estate investor John Arriaga. Arriaga invested only in real estate within one mile from the Stanford Campus. That’s it. Monish Pabrai shared the story, saying (emphasis mine):

“All he did was he never put on a lot of debt and when things went down he bought and when everyone got euphoric he sold. That’s all he did. What is John Arriaga’s circle of competence? Is it real estate? No! Is it U.S real estate? No! Is it California real estate? No! Northern California real estate? No! Only real estate around Stanford. His circle of competence is that small.”

It’s not the size of your circle, but the depth at which you understand its bounds.

Let’s go to Jakob’s first taste in investing within his circle.

Jakob started out in investing, lending, and banking in 1485. Fugger lent 3,000 florins to a Duke, Sigmund of Innsbruck. In exchange for the loan, Fugger received the right to 1,000lbs of silver. The book notes, “Fugger paid eight florins a pound and sold it in Venice for as much as twelve florins.”

Not bad, I’ll take a 50% return any day.

This paved the way for Fugger’s second investment in Sigmund. This time, it would be under significant distress.

Sigmund went wild, commandeering an Alps town that belonged to Venice, Italy. When word reached Venice, they demanded Sigmund leave the town and pay 100,000 florins for the locals’ troubles.

There was one problem. Sigmund didn’t have the money. To make matters worse, his usual bankers wouldn’t lend him anything. Who doesn’t want to lend to a ransacking crusader? Failing to repay the pillaged town, Sigmund faced military invasion and likely death.

Fugger was Sigmund’s last hope.

Knowing his borrower’s situation, Fugger crafted a deal that would make him fortunes. In short, Fugger put up the 100,000 florins. While Sigmund worked to repay the 100K loan, Fugger received 100% of the Duke’s silver mine output which he receives at a market discount.

Fugger had no idea if Sigmund would repay him or even honor the deal. Going back to the book, the author notes, “Sigmund was the law of the land. Like all royals, he could renege without consequences … The only things that kept him honest were his honor and his desire to borrow again in the future.”

Another great example of Fugger’s appetite for risk is his venture into Hungarian Mines. Mind you, this was at a time when people feared a Turkish invasion of Hungary. No monied person would dare invest in the country during the time.

Where others saw danger, Fugger saw opportunity. He invested when there was literal blood in the streets. In doing so, he secured most of the coping market in Hungary. He made a killing by investing where others wouldn’t dare go.

None of these stories would’ve been possible without Fugger’s second lesson: confidence.


Lesson #2: Confidence In Yourself as an Investor

Fugger came from an immigrant family. As a teenager he left his home, totally green in the field of finance, and learned from the best in Venice. Through his education, Fugger developed confidence in his ability to craft deals and receive payments.

Confidence is crucial during this period. Fugger wasn’t lending money to Joe Schmo at the local masonry. He made deals with kings, emperors, and priests. Powerful people that could do great financial harm to Fugger if they so chose.

Most of us will never have to worry about repayment of principal from loans lent to kings. That’s okay. The stories tell a deeper truth. That self-confidence is key in the game of investment. The best example of self-confidence in Fugger’s life is in his interaction with the King of Spain, Charles V.

Like most political campaigns today, running for office costs money. A lot of money. Charles V didn’t have the necessary funds to wage war against his political adversaries. Instead, he turned to wealthy businessmen and families, most notably the Fuggers.

When it was all said and done, Jakob Fugger lent Charles V 835,000 florins.

Fugger, of course, wasn’t in the charity business. He demanded full repayment of his loan.

Two years before Fugger’s death, he pens a letter to Charles V demanding the remaining 300,000 florin. Fugger says, “it is well known that without me your majesty might not have acquired the imperial crown.”

That’s confidence in your ability to generate returns. That’s confidence in your ability to structure deals and see things through. And how did Fugger gain such confidence? A solid grasp of accounting.


Lesson #3: Solid Understanding of Accounting & Thirst For Knowledge

A great investor without a solid grasp of accounting is like a pro quarterback that can’t throw a spiral. You cannot have one without the other. Accounting is the language of business. Accounting enables investors to judge whether a business looks like a good investment.

Fugger understood this better than most in his day. He learned double-entry book-keeping from the Venetians. In his book, The Richest Man Who Ever Lived, author Greg Steinmetz notes:

The Venetians taught him the craft of accounting. While most German merchants “were still jotting down numbers on paper scraps that were never organized . . . ” Italians [had] more robust methods to handle large, multinational enterprises” – most notably double-entry bookkeeping which was “so named because each entry had a corresponding entry to make the books balance” (9-10).

Had Fugger not learned the language of business while in Venice, who knows how big (or small) the family empire would’ve been.

But it was more than accounting. Fugger developed a foundation (to quote Munger) “of worldly wisdom”. It’s said that Fugger learned to read/speak many languages. That he grasped conversion formulas for weights and currencies. And that he honed his skills in negotiation. He did all this in Venice, as a teenager.

Jakob Fugger amassed a fortune few (if any) can beat. His net worth fluctuated around $400B at the time of his death. The deals were many, the countries diverse, but a few common threads wove through:

    • Investing in Highly Distressed Areas
    • Confidence in His Ability
    • Solid Understanding of Accounting & A Thirst for Knowledge

You might not have to finance kings or loan money to armies. But you can learn timeless investing principles from history’s wealthiest man.

But it wasn’t all money-grabbing for Fugger. The family firm constructed Fuggerei. Fuggerei is the world’s oldest social housing complex Named after the wealthy lineage, the Fuggerei comes complete with 67 houses, 147 apartments, and an administrative building.

It was, in its own way, an independent medieval city. To this day visitors can tour the city. The cost of admission? 6.50 euros, or seven times the cost of annual rent.

 

Sources: https://www.fugger.de/en/singleview/article/merchant-benefactor-visionary/33.htmlhttps://www.fugger.de/en/singleview/article/the-most-important-firm-of-its-time/31.htmlhttps://www.medievalists.net/2018/12/richest-person-history/https://www.marketwatch.com/story/7-money-making-lessons-from-the-richest-man-who-ever-lived-2017-05-02https://www.europenowjournal.org/2017/02/28/the-richest-man-who-ever-lived-the-life-and-times-of-jacob-fugger-by-greg-steinmetz/https://www6.royalbank.com/en/di/hubs/ideas-and-motivation/article/takeaways-from-a-500-year-old-investing-style/joxhczbn

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